$$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$$

$$\text{Equity} = \text{Assets} - \text{Liabilities} = 100,000 - 60,000 = 40,000$$

Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To provide useful financial information for decision making.

Question 2

According to the accounting equation, which formula must always be true on the balance sheet?

Accepted Answer

Assets = Liabilities + Equity

Question 3

A company purchases equipment for $$11,800 and supplies for 500 on $$account. What is the correct journal entry?

Accepted Answer

Debit Supplies $$500, Debit Equipment 11$$,800, Credit Accounts Payable $12,300

Question 4

Which principle requires that assets be recorded at their original purchase price?

Accepted Answer

Historical cost principle

Question 5

If a company performs services on account for $3,300, which accounts are affected?

Accepted Answer

Debit Accounts Receivable $$3,300, Credit Service Revenue 3$$,300

Question 6

Which of the following is NOT a current asset?

Accepted Answer

Land

Question 7

What is the normal balance for an asset account?

Accepted Answer

Debit

Question 8

Which of the following statements about dividends is correct?

Accepted Answer

Dividends are not an expense; they are a return of profits to shareholders.

Question 9

A company collects $1,200 cash from a customer who previously owed money. What is the correct journal entry?

Accepted Answer

Debit Cash $$1,200, Credit Accounts Receivable 1$$,200

Question 10

Which assumption states that a business will continue operating unless there is evidence to the contrary?

Accepted Answer

Going concern assumption

Question 11

Which of the following is a plausible reason for a company to buy back its own shares (treasury stock)?

Accepted Answer

Management believes shares are undervalued.

Question 12

Which of the following is a key difference between GAAP and IFRS?

Accepted Answer

GAAP is set by FASB in the US, while IFRS is set by IASB internationally.

Question 13

Which equation correctly calculates ending retained earnings?

Accepted Answer

$$	ext{Ending Retained Earnings} = 	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Question 14

Which step in the accounting cycle involves recording transactions in the general journal?

Accepted Answer

Journalizing

Question 15

A slide error occurs when:

Accepted Answer

An amount is recorded at the wrong magnitude on both sides (e.g., $$50,000 as 5$$,000).

Question 16

Which account increases with a credit?

Accepted Answer

Liabilities

Question 17

If a company has the following balances: Assets $$100,000, Liabilities 60$$,000, what is Equity?

Accepted Answer

$$	ext{Equity} = 	ext{Assets} - 	ext{Liabilities} = 100,000 - 60,000 = 40,000$$

Question 18

Which of the following is an example of a long-term asset?

Accepted Answer

Equipment

Question 19

Under accrual accounting, when is revenue recognized?

Accepted Answer

When it is earned, regardless of when cash is received.

Question 20

Which of the following is a current liability?

Accepted Answer

Accounts Payable

Introductory Financial Accounting: Core Concepts, The Accounting Cycle, and Transaction Analysis

Study Guide - Practice Questions